The Made In America Tax Plan I 4
Addressing Flaws In The Current System
The Made in America tax plan advances a series of reforms aimed at addressing the major aws in the corporate tax code, including
both shortcomings introduced through the TCJA and longstanding ineiciencies that have persisted for decades. The President’s
plan would make the tax code more eicient, reverse biases against labor, raise suicient revenue to pay for critical initiatives,
eliminate incentives for prot shiing and oshoring, and introduce new preferences for the production of clean energy. Combined,
these reforms will have substantial benets for the American economy.
Toward a More Ecient Tax System
The reforms in the Made in America tax plan are aimed at improving economic eiciency. Much of the eiciency argument for
low corporate statutory rates is based on the premise that corporate investment incentives are driven by the corporate tax rate.
Supporters of this line of thinking contend that higher corporate tax rates decrease investment incentives, and lower corporate tax
rates improve them.
Evidence following the 2017 corporate rate cut from 35 percent to 21 percent, however, did not show an increase in investment
or economic growth from trend levels, with one analysis concluding that “there is no evidence that the 2017 tax law has made a
substantial contribution to investment or longer-term economic growth.”
2
In fact, a report from the International Monetary Fund
(IMF) found that less than one-h of the increase in corporate cash balances, which were enhanced by the corporate tax cut, was
used for capital and research and development (R&D) spending. Instead, the increased corporate cash balances were directed toward
nancing buybacks and dividend payouts for shareholders.
3
It is unsurprising that corporate tax cuts would not spur a surge in investment since much of the corporate tax falls on “excess prots,”
not normal returns. Taxing these excess prots can generate revenue without undue distortion, according to research. Moreover, a rising
share of the corporate tax base, over three-quarters by 2013, consists of excess returns. That fraction is likely even higher now, due to the
rising market power of large companies, as well as special provisions that exempt most normal returns from taxation.
4
Although the 2017 corporate tax rate cut purported to increase the competitiveness of U.S. companies, the law’s generous treatment
of corporate prots was paired with incentives for shiing prots and activities oshore. Instead of a focus on encouraging
investments in the United States, for example, the 2017 TCJA created new oshoring incentives through two provisions, the global
2 See detailed evidence within: Furman, Jason. 2020. Prepared Testimony for the Hearing “The Disappearing ‘Corporate Income Tax.’” Committee on Ways and
Means, 11 February; Gravelle, Jane and Donald Marples. 2019. “The Economic Eects of the 2017 Tax Revision: Preliminary Observations.” Congressional Research
Service, 22 May; Clausing, Kimberly. 2020. “Fixing the Five Flaws of the Tax Cuts and Jobs Act.” Columbia Journal of Tax Law 11(2): 31–75.
3 See Kopp, Emanuel, Daniel Leigh, Suzanna Mursula, and Suchanan Tambunlertchai. 2019. “US Investment since the Tax Cuts and Jobs Act of 2017.” International
Monetary Fund, 31 May (https://www.imf.org/~/media/Files/Publications/WP/2019/WPIEA2019120.ashx). This is consistent with work by Hanlon, Hoopes, and
Slemrod (2019) that nds that only around 20 percent of S&P 500 companies in 2018 mentioned planned increases in investment that were linked to the 2017 tax
reform (see https://www.journals.uchicago.edu/doi/abs/10.1086/703226).
4 See Power, Laura and Austin Frerick. 2016. “Have Excess Returns to Corporations Been Increasing Over Time?” National Tax Journal 69(4): 831–46. Since this
paper, tax law has exempted much of the normal return to capital for equity-nanced investment, so the corporate tax should fall even less on labor than it did in
years past. (The mechanism by which corporate taxes burden labor requires a reduction in investment.) Of note, many debt-nanced investments are currently
subsidized through the tax code. Also, the role of market power in the U.S. economy has continued to increase, making more and more of the corporate tax base
excess prots rather than the normal return to capital. See Phillipon, Thomas. 2019. The Great Reversal: How America Gave up on Free Markets. Cambridge:
Harvard University Press.